In case you were just starting to breathe even the slightest sigh of relief that the worst of the recession may be over, heed this warning: We may see the next economic catastrophe as early as 2011.
That's the harrowing take of the economist Jon Fisher who appeared on IE Radio this week (access his full interview here: Jon Fisher, Investor). If you think his forecast sounds rash, it's worth noting that he's credited for making one of the most accurate predictions in US history, when in April 2008 he predicted unemployment would reach 9 percent by April of the following year (it hit 8.9 percent).
In a discussion on IE Radio about how entrepreneurs can thrive in this type of economy, Fisher said the most successful businesses will be those that were established early enough, or are growing fast enough, to be sold by 2011, because "it's just about that time we'll be seeing the next economic catastrophe."
Fisher's gloomy 2011 prediction stems from calculations he's done based on the interest of the total debt in the United States. When interest rates recover, he says, the United States will have to start managing a great percentage of its GDP in order to service the interest on the debt (i.e., begin paying it down).
"This is clearly not sustainable," he said. "The math does not support the establishment of this kind of debt. Just because Japan has twice its debt to GDP does not mean this country can sustain it."
Fisher says the only thing that may get the nation's debt in check is if we have a period of explosive growth, akin to the growth associated with the commoditization of the Internet in the late 1990s. And for that to happen, he says, the Obama administration needs to make good on a certain promise.
"We generated a lot of revenue from 1995 to 2000. If we can replicate that, and have this explosive period of growth, where we can cut this deficit, and actually start trimming these numbers down... I think that will be powerful," he said.
"The only way I can envision that is if administration follows through on its promise to eliminate capital gains on small business sales, which I think will trigger an unprecedented M&A wave, just like the Taxpayer Relief Act of '97 triggered an unprecedented housing wave."
On putting recovery and stability in the hands of our leaders in Washington, however, Fisher's take was dismal. "I don't think anything is going to change in Washington," he said. "I think what happened with Lehman Brothers looked a lot like what happened with Enron... So I don't think we ever learned and I don't think we ever will."
For more from Fisher, you can access Tuesday's interview in our archives, or by clicking here: Jon Fisher, Investor.
There will always be something next, at least until the end, finnitto, kaput! So we should develop a correct attitude in order to be able to live.
The free market economy that has prevailed to the present depends on many kind of means to predict future outcomes. Value determinations haave evolved from cost determinations based on actual expenses to cash flow calculations based on future time value of money estimated to the present. So the emphasis on predictions has become the norm and the cornerstone of economic growth. And also, the concept of growth has become embedded in our brains as if growth is or should be the norm. Recent experiences have REMINDED US that indeed growth IS NOT THE NORM.
We have to recover the correct use and social value of economic predictions. And this implies that we have to recognize the fact that economic predictions are not a religion or a social set of values. Economic predictions are ECONOMIC TOOLS and should be used to gather and analyze data and estimate possible economic scenarios. But the real determinative s for our behavior, our real set of values and rules of social operation should be taken from elsewhere: from religion, creeds, beliefs, traditions, philosophy, family values, etc. But never from economic predictions. We must never act according to Jon Fisher, Paul Krugman or Bernanke or else. They are experts in economy, not social or spiritual counsels. And the economy must not be our principal living guidance because that is not a life, that is a consumer behavior and I think that we can be more than that. In fact, I am sure that we are more than that.
Probably there will be a next economic catastrophe and it will surely hurt. But there can be other sorts of catastrophes and the principal one is the catastrophe of our spirit. We can devise alternative ways of living through any kind of catastrophe (even economic ones) if they come. But our ability fully depends on the strength of our spirit, whatever creed or religion we may have or not. Without a strong spirit we will not be able to cope anything and that, our inability to cope with life is indeed the great catastrophe. That one is avoidable.
Lets look to the future with hope, as Ronald Reagan always said: It's morning again in America! Let's face the sunshine front face and full with spirit!
I think eliminate capital gains on small business sales is just one step that the government need to make to expand business growth. However, if the government really wants to see an explosion of growth in R&D, they need to reform copyright and patent laws. So many companies are just resting on their laurels. There needs to be a strong incentive to innovate and produce the new media content. Imagine how far advance we would be if patents were only 10 years or less instead of 20 years or if an entertainment company were to lost its copyright after 20 years instead of for the life of the author plus an additional 70 years. There would be an explosion of people pitching and producing new concepts and content.
Well, there's plenty of blame to go around. The current state of our economy should not be a cause for finger-pointing but for soul-searching on the part of everyone involved, including the financial industry, the government, and, yes, us as citizens, voters, consumers, and investors.
No one needs fingerpointing, but some constructive criticism and perhaps at least pointing some blame on the institutions that were involved in this failure will be the beginning of some Real change. Let's start with the US Treasury and the Federal Reserve and go from there. As usual the media and so many uneducated people will look to the government for help (yes, the ones who allowed this to happen), since big government is the solution to all of our problems [sarcasm]. The so-called "free market" (which doesn't truly exist through centralized planning, and has never really been a part of American culture at least in the 20th and 21st century) and lack of over-regulation will be blamed... "gee if we had only regulated a bit better. Perhaps we need to try this.". It's a lot like trying to shoot a target with a blindfold on, while being intoxicated - believe me I've tried it and it isn't an easy task!
Here's a good start:
* End the War in Iraq and Afghanistan.
* End the overseas nation building and focus more on national defense. Interventionist foreign policies only result in America being hated and being victims of what the CIA coined in 1954 as "blow back" (unintended consequences of America's imperialistic projects).
* Stop the massive corporate bail outs and start allowing bad businesses to fail. This "too big to fail" attitude on behalf of these lobbyist recipients (i.e. the politicans) is a major problem. Malinvestment should be punished not awarded. Successful companies will be able to buy up the good assets of these failed businesses. This government interfering in the free markets only screws things up.
* End the free flowing credit and debt instrument-enabling Keynesian school of economics
* Nationalize the credit and money creation, through the US Treasury and stop allowing the Federal Reserve to print this money and credit at interest to the American people and businesses. Tell the IMF to keep their noses out of America's business. It is believed that America's economy is not only being held together by the Chinese purchases of bonds, but also by International Monetary Fund (IMF) SDR's - "Special Drawing Rights". Global economy anyone?
* Slowing work towards backing the money up by something tangible. First you would have to tighten up credit, but over time you could back it up partially by a hard currency like gold or silver.
* Eliminate short selling, and eliminate much of the derivative markets. The Derivative markets make commodity prices more volatile, and both the derivative markets and short selling of stocks create manipulation and thus huge losses for the many while rewarding the few involved. This is outright fraud in my opinion.
* Encourage saving not spending for citizens. Of course this is a double edged sword since anyone putting money into a savings account is getting hosed right now with interest rates. I won't even go into the hidden tax also known as inflation that is stealing your wealth. Invest it in a commodity and you're more than likely to be above sitting comfortably above inflation (true inflation, not these lies the government and banks push out, which measure part of it against the inaccurate CPI - Consumer Price Index) and with a decent return on your investment.
Ancient Rome, the Spanish Empire, the Great British Empire didn’t learn either…and they fell. The historical, great, economic collapses have stemmed from one main cause, unsustainable debt! http://usdebtclock.org/
One thing has been proven over & over throughout history, of which foolhardy human beings STILL FAIL to grasp…Socialism ultimately DOES fail. Margaret Thatcher said it well regarding Socialism, you eventually run out of other people’s money.
“Where are we going? I believe that that depends on us, that that's not in the cards; we are masters of our own destiny; but IF, you take the road that we have been on, we are headed toward a destruction of our free society and toward a totalitarian society. We are unfortunately headed down the route which Chile has already taken essentially to its end; which Britain has taken much farther than we are.Now we still have time to avoid it, but we will not avoid it unless the people of this country recognize the danger and take very difficult and important steps to set a limit on the extent to which they are going to permit government to interfere with their lives.”
"Likewise, I think the solution will be a complicated one requiring lots of changes large and small."
I agree with you Mary, that there are many to blame and we cannot point out a single solution to the problem.
But we need a change and it should start SOMEWHERE. Our eyes are always turned to the government's direction because those want to come to power always promise to change things around to make our lives better, and if we don't see that change happen, we point out finger to them.
Well, there's plenty of blame to go around. The current state of our economy should not be a cause for finger-pointing but for soul-searching on the part of everyone involved, including the financial industry, the government, and, yes, us as citizens, voters, consumers, and investors.
Likewise, I think the solution will be a complicated one requiring lots of changes large and small.
I certainly hope Fisher is wrong, but at the very least this dire prediction from a trustworthy source should scare us all into new ways of thinking -- not defending.
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WASHINGTON -- Gov 2.0 Summit -- The federal government is wild about Websites, with its latest being Challenge.gov, a site for crowdsourcing solutions to problems.
After months of facing legal and political pressure, and a barrage of negative media reports, Craligslist has shut down the Adult Services corner of its Website.
If you've been exhibiting signs of IE Radio withdrawal, today is your lucky day: IE Radio picks up yet again, this time with Dale Fuller, CEO of MokaFive. Fuller joins us at 2:00 p.m. ET.
Getting to Work on Smart Work: How IT Is Transforming the Implementation of the 'Internet of Things' Organizations in all industry sectors are becoming more instrumented, interconnected, and intelligent -- and that's changing the way they approach virtually every facet of their operations. It's up to IT to help organizations adopt a "Three I's" approach that leverages the emerging Internet of Things and enables them to work smarter. READ THIS eBOOK
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